The Life Settlements Process
Many scenarios exist that encourage policy holders to exit a life insurance arrangement. Changes in estate planning needs, immediate need to access capital in order to pay for medical expenses and prohibitive premium costs are only a few of the many reasons that may cause people to want to exit an insurance arrangement.
Policy owners considering a Life Settlement transaction should consult with their financial advisors and/or insurance agents and tax advisors in order to determine whether or not a Life Settlement is something they should pursue.
Financial advisors and/or insurance agents have the responsibility of explaining the pros and cons of Life Settlements to their clients in order for them to be fully aware of what the transaction entails.
Life Settlements are complex transactions. An individual looking to sell a policy must do so with the guidance of a trusted insurance agent and or Life Settlements broker. Different states require and agent and or broker to be licensed in order to conduct a Life Settlements transaction.
After choosing proper representation to settle a policy, the client will submit an application and will be required to provide a series of documents that include, but are not limited to:
- Life Settlement application form (provided by the broker or agent)
- Personal Information (SSN, address, etc.)
- Medical Records
- Copy of the Insurance Policy
- Insurance Policy Application
- HIPAA Release
Once all the submission requirements outlined in the application are met, the seller representative will submit the case to Magna.
Magna will evaluate the case and determine whether or not it meets the requirements of the purchasing entities (funders).
If Magna considers that the submitted case meets the requirements and parameters, the case will proceed to pricing. After the Funder has evaluated the case, an offer is made or the case will be rejected. Magna relays the offer to the submitting seller representative who will evaluate and compare it to other offers received. The seller representative, in conjunction with the policy owner, determines whether or not a Life Settlement is the best solution.
If the offer is accepted, Magna sends a closing package to the advisor along with a request for additional information needed to complete the transaction.
If an offer is accepted, Magna will require a signed acceptance from the seller representative. Once this acceptance is received, Magna will start its underwriting process which includes anti-fraud analysis, medical evaluation and verification of trust documents if applicable.
Areas of anti-fraud detection include but are not limited to:
- Application for insurance
- Comparison to current medical record
- Pre-existing conditions
- Copy of Policy
- Insurable Capacity
- Insurable Interest
Contracts are issued and sent to the advisor for review and signing. After the provider reviews the contract, the purchaser signs and a notification is sent to the carrier for ownership transfer. Funds are deposited into an escrow account.
After verification of policy ownership transfer, funding Instructions are sent to the escrow agent for the release of funds and the seller will be paid within statutory requirements.
Compliance and Regulation
Magna’s commitment to the development of the secondary life insurance market is evident in its involvement with Life Insurance Settlement Association (LISA), National Association of Insurance Commissioners (NAIC), National Conference of Insurance Legislators (NCOIL), and its cooperation with state insurance regulators. Magna has an impeccable compliance record with state regulators, including the State of Florida (considered to have the most stringent compliance standards).
Magna has plans to obtain licenses in every regulated state and promote legislation in those states where none exist.
To learn more, visit our Public Awareness page.
What is a Life Settlement?
A Life Settlement is a transaction in which a policy holder, under the guidance of a financial advisor and/or insurance agent, possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy and is responsible for all subsequent premium payments.
Life Settlements are an important development in that they have opened a secondary market for life insurance. The secondary market has created the opportunity for the holder of a policy with an attractive profile to gain much greater value from the resale of the policy, particularly as there are often competing bids for a policy.
What is a Viatical Settlement?
A viatical settlement is a transaction in which a person with terminal illness, under the guidance of a financial advisor and/or insurance agent, sells an insurance policy to a third party for more than the cash value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy and is responsible for all subsequent premium payments.
A viatical settlement differs from a Life Settlement in that a transaction is considered a viatical settlement when the insured is terminally ill and hence has a low life expectancy.